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The New Squeeze: Firms Push Back on Recruiter Fees

Posted by Zach Lowe

Associate hiring hasn't exactly made a roaring comeback, but sources across the industry say there has been a small uptick in the market for associates lately, which means recruiters and firms once again are getting together to place nonpartners.

But one thing appears to have changed: At least a half-dozen law firms are pushing back against standard commission rates that pay recruiters a placement fee between 25 and 30 percent of the associate's starting salary in major markets. Major firms are demanding or requesting lower fees, with one firm, Herrick, Feinstein, pushing a 12.5 percent fee specifically for the placement of laid-off associates at Herrick, according to sources familiar with the matter. Recruiters across the U.S. caution that the push back from firms is not yet widespread, and that most are still paying the 2007-era standard rates in major markets. "It is isolated and somewhat reactionary," says T.J. Duane, a principal of the recruiting firm Lateral Link. "It is not an industrywide thing."

Still, the evidence of a burgeoning trend is there. Kirkland & Ellis recently informed recruiters that it would be paying only a 20 percent commission fee for all associate placements outside of New York, according to three sources familiar with the matter. Firm officials declined to comment on the fee cut. Duane Morris has told recruiters in Chicago that it would prefer to pay a 20 percent fee for some associate hires, though a source familiar with the matter says the firm has not adopted a bright-line rule. Morrison Cohen, an 80-lawyer firm based in Manhattan, has negotiated a 15 percent fee with some of its preferred recruiters, according to two sources familiar with the matter. David Scherl, the firm's chair and managing partner, says recruiters actually pitched him the lower fee with the understanding that the law firm could have had its pick of job-seeking associates without the help of any recruiter. The 15 percent fee was a way to preserve the firm's relationship with the recruiters and for the recruiter to maintain goodwill in the associate community, Scherl says. "It was just a capitalist market coming to grips with reality," Scherl says of the reduced fee. "Recruiters are willing to do things on a reduced-fee basis. We wanted to do right by associates instead of being dissuaded from hiring them because they've decided to use a recruiter."

Other firms using a reduced fee include the 125-lawyer entertainment firm Mitchell Silberberg & Knupp (15 percent) and Herrick, which has informed recruiters it will use a separate rate of 12.5 percent for laid-off associates, according to three sources familiar with the matter. Thomas Lambert, the managing partner of Mitchell Silberberg, did not immediately respond to a request for comment.

Herrick would not confirm the specific 12.5 figure for laid-off associates, but George Wolf, Jr., Herrick's managing director, released a statement to The Am Law Daily confirming that Herrick uses "a bifurcated fee structure as a fair and appropriate way to contain recruiting costs and have them reflect today's supply and demand." Why the reduced fee specifically for layoff victims? Wolf adds this: "Attorneys who are not currently employed presumably are doing more of the legwork and presenting themselves to recruiters, saving the recruiters significant time that they usually spend identifying and contacting prospects."

Again: This is not a tidal wave of change. Recruiters agree that most big firms continue to pay the standard rate, and some say no firms have approached them with a request for a lower placement fee. "When they need to rely on recruiters, firms are still paying our standard fees," says Amy McCormack of the Chicago-based recruiting firm McCormack Schreiber Legal Search.

Those recruiters who have experienced the push back from firms say it's likely temporary, and that placement fees will jump back up as the economy recovers and firms again find themselves competing for midlevel associates. "My expectations are certainly that this is not a long-term precedent," says Gary D'Alessio, president of Chicago Legal Search, "but rather that it's a short-term request."

The firms mentioned in the article are not top tier law firms. Top tier firms understand that they are only as well-regarded as their lawyers and are willing to pay market rates to their recruiters and attorneys in order to attract the best and brightest. Law firms that view their recruiters and attorneys as just another cost of doing business try to hire on the cheap.

It's my understanding that Herrick Feinstein pays well below market across the board - - recruiters, attorneys, paralegals and staff. The firm never recognized lockstep pay for its attorneys. Attorney pay is based on a "level system" and advancement from one level to the next typically takes two years. During the recession, the
firm cut experienced attorneys and
replaced them with junior attorneys who had been laid off by larger firms. Given Herrick Feinstein's high attorney turnover rate, it's not surprising that the firm is looking to reduce recruiting costs further.

If the market is saturated with job seekers, why would a firm need to hire a headhunter in the first place? When heads are coming to you, there’s not much need to hunt them, is there? I’m sure the headhunters out there will disagree, but, at a time when applicants are plentiful, I am not convinced that there is any true value in a placement agency. Unless a firm is foolish and lazy enough to delegate the entire screening process to such an agency, why pay a substantial portion of the annual salary of an employee that may never make it a year?